Is Rexnord Corp (RXN) Going to Burn These Hedge Funds?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Rexnord Corp (NYSE:RXN).

Rexnord Corp (NYSE:RXN) was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. RXN shareholders have witnessed a decrease in support from the world’s most elite money managers recently. There were 25 hedge funds in our database with RXN holdings at the end of the previous quarter. Our calculations also showed that RXN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Jeffrey Bronchick - Cove Street Capital

Jeffrey Bronchick of Cove Street Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the key hedge fund action regarding Rexnord Corp (NYSE:RXN).

How have hedgies been trading Rexnord Corp (NYSE:RXN)?

Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from one quarter earlier. On the other hand, there were a total of 21 hedge funds with a bullish position in RXN a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

The largest stake in Rexnord Corp (NYSE:RXN) was held by Impax Asset Management, which reported holding $110.9 million worth of stock at the end of September. It was followed by Alyeska Investment Group with a $35.9 million position. Other investors bullish on the company included Citadel Investment Group, Lodge Hill Capital, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Lodge Hill Capital allocated the biggest weight to Rexnord Corp (NYSE:RXN), around 5.54% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, dishing out 1.48 percent of its 13F equity portfolio to RXN.

Judging by the fact that Rexnord Corp (NYSE:RXN) has experienced bearish sentiment from the smart money, it’s easy to see that there is a sect of hedgies who were dropping their full holdings in the first quarter. At the top of the heap, Michael Cowley’s Sandbar Asset Management said goodbye to the largest position of the “upper crust” of funds watched by Insider Monkey, valued at close to $16.2 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund dumped about $8.7 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 6 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Rexnord Corp (NYSE:RXN). These stocks are Simpson Manufacturing Co, Inc. (NYSE:SSD), New Relic Inc (NYSE:NEWR), WD-40 Company (NASDAQ:WDFC), and Livongo Health, Inc. (NASDAQ:LVGO). This group of stocks’ market values resemble RXN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SSD 26 197022 2
NEWR 31 809963 -13
WDFC 17 199539 0
LVGO 17 82549 -1
Average 22.75 322268 -3

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.75 hedge funds with bullish positions and the average amount invested in these stocks was $322 million. That figure was $213 million in RXN’s case. New Relic Inc (NYSE:NEWR) is the most popular stock in this table. On the other hand WD-40 Company (NASDAQ:WDFC) is the least popular one with only 17 bullish hedge fund positions. Rexnord Corp (NYSE:RXN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on RXN as the stock returned 30.2% during the second quarter and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.